#SupportScotch@ScotchWhiskySWA

@ScotchWhiskySWA

scotchwhisky

association

www.scotch-whisky.org.uk

ECONOMICSCOTCHWHISKY

IMPACT REPORT

ECONOMIC IMPACT REPORTAPRIL 2019

The Scotch Whisky industry is strategically important to the economies of Scotland and the United Kingdom. This report - building on workby the Centre for Economic and Business Research (Cebr) - explores Scotch Whisky’s direct contribution to GVA, international trade,employment, supply chain, and revenue raised through excise duty.In 2018, the Scotch Whisky industry was estimated to provide £5.5 billion in gross value added (GVA) to the UK economy. The direct impact ofScotch Whisky in the economy is estimated to be £3.8 billion with additional indirect and induced effects of a further £1.7 billion. For every £100 ofadded value the industry produces, another £45 is generated in the broader economy.Growth in the manufacturing base for Scotch Whisky has been strong since the turn of the century with more distilleries, warehouses and productioncoming online.

The Scotch Whisky industry is part of a complex and integrated supply chainwhich spreads throughout Scotland, the rest of the UK and globally. Theinterdependence between sectors results in multiple knock-on impacts ofpolicy making, with job creation, investment, and gross economic impact alldependent on a positive policy enviroment in Scotland and across the UK.Globally, over £4.7 billion of Scotch Whisky was exported in 2018 to around180 countries - a record high.Scotch Whisky contributed 70% to the value of all Scottish food and drinkexports, 21% to the value of all UK food and drink exportsm and 1.3% of thevalue of all UK goods exported in 2018.For every £1 billion worth of goods exported from the UK, £13 million isScotch Whisky.Without Scotch Whisky, the UK's balance of trade deficit would have been£145.7 billion, or 3.3% more than its current level.The industry continues to support 42,000 jobs across the UK. This includes10,500 directly in Scotland, and 7,000 in rural communities.In 2018, UK spirits excise duty receipts accounted for £3.8 billion, over 31% ofall alcohol revenues – a proportion which has steadily increased in recentyears having overtaken beer receipts in 2016.In the last five years, excise receipts increased to HM Treasury (HMT) by 23%or by £735m during a period where the net increase to the excise rate wasonly 52p per litre of pure alcohol (LPA).

EXECUTIVE SUMMARY

PAGE ONE#SUPPORTSCOTCH SCOTCH-WHISKY.ORG.UK

Scotch Whisky is worth £5.5 billion in GrossValue Added (GVA) to the UK economy.

The UK's balance of tradedeficit would be 3.3% wider

without Scotch Whisky

The industry employsover 40,000 people

across the UK

Over two-thirds of UKspirits GVA is generatedby Scotch Whisky

Scotch Whiskyaccounts for 21% ofall UK food & drinkexports

For every £1 billion worth of goods exportedfrom the UK, £13 million is Scotch Whisky.

£ £ £

£ £ £

AT A GLANCE: SCOTCH WHISKY ECONOMIC CONTRIBUTION

ECONOMIC IMPACT REPORTAPRIL 2019GVA IMPACT

PAGE TWO#SUPPORTSCOTCH SCOTCH-WHISKY.ORG.UK

GVA aggregates the sum of the sector's turnover and total remuneration of employees, net of the taxes and subsides on production. GVAindicates the size of our industry within the economy.The Scotch Whisky industry is estimated to have contributed £5.5 billion to the UK economy in GVA in 2018. This is a 10% increase when comparedto the industry's GVA in 2016. Over this period, new distilleries have opened and old distilleries re-opened, with the corresponding supply chainimpacts. The industry has experienced premiumisation as consumers look for products with the provenance and heritage embodied by ScotchWhisky.The spirits sector overall is estimated to be 33.5% of the value of the UK alcohol industry which was valued at over £22 billion to the UK economy.Over two-thirds of total UK spirits GVA is accounted for by Scotch Whisky and, given that Scotch Whisky is Scotland's national drink - distilled,matured and, in the case of Single Malt Scotch Whisky, bottled in Scotland, it is estimated that it contributes 85% of total Scottish Spirits GVA.

The ONS estimated that the UK GVA for 2018 was £1.89 trillion,the UK alcohol sector therefore accounted for 1.2% of the totaleconomy with the Scotch Whisky sector accounting for 0.3% ofthe UK economy.

In relation to Scotland's economy, theScotch Whisky industry is one of theleading sectors. The direct GVA impact of£3.8bn is more than double life sciences(£1.5bn), and comparable to sustainabletourism (£3.9bn).Scotch Whisky employees contributesignificantly to the productivity of theScottish economy. The manufacture ofbeverages in Scotland, dominated by theScotch Whisky sector, produces £210,505GVA per employee.This is more productive than the energysector (including renewables) at £173,511per head, life sciences at £93,735 perhead, and creative industries (includingdigital) at £60,712 per head.

INDUSTRY INVESTEDMORE THAN

MILLIONIN CAPITAL PROJECTSOVER THE LASTFIVE YEARS

£500

SWA estimate. Cebr calculated the gross value added of the Scotch Whisky industry based on publicly available data which related to the calendar year 2016. Earlier, high level estimates were provided using the ONS annual business survey statistics and ONS Supply Use tables to calculate theaggregate sector each year. Cebr estimate that in 2016, GVA for the sector was £4.9 billion – in line with previous estimates from the Association. This was established by Cebr analysis which established that Scotch Whisky accounted for 77% of the sector (found through proportioning: 85% ofScottish GVA was Scotch and Scottish GVA of spirits contributed 91% of UK spirit GVA). In order to provide the update to 2018 figures this estimate has been advanced using the same method although by providing a more conservative estimate of the share of Scotch Whisky as part of thespirits sector to take into consideration the increased diversification within the UK spirits sector.

Data relating to other sectors in Scotland refers to Scotland's Economic Strategy - Growth Sector Statistics - in 2016.

1

1

2009£0.0£1.0

£2.0£3.0

£4.0

£5.0

£6.0

£7.0

£8.0

2010 2011 2012 2013 2014 2015 2016 2017 2018

SCOTCH WHISKY GVA

SCOTCH WHISKY & UK SPIRITS GVA

GROSS

VALUEAD

DED(£billio

n)

UK SPIRITS GVA

DID YOUKNOW ???

2

2

ECONOMIC IMPACT REPORTAPRIL 2019

PAGE THREE#SUPPORTSCOTCH SCOTCH-WHISKY.ORG.UK

Source: ONS annual business survey and supply-use tables; Cebr analysis

AGRICULTURE +115.8%

+256.2%

+179.7%

+101.9%

+67.1%

MANUFACTURING

WHOLESALE

RETAIL

HORECA

MANUFACTURING33.3%

AGRICULTURE1.1%

The manufacturing process is the dominant contributor to the value chain.Despite this, a great deal of value added is aggregated throughout the supply chain with hospitality (or HORECA), wholesale and retail accountingfor over 50% of the value added for the industry.Each stage of production has experienced strong growth since the turn of the century with the manufacturing process being the driver of the growthby over 250%.

GVA IMPACT

PRODUCTIONS STAGE GVA GROWTH, 2000-2018SHARE OF VALUE ADDED BY EACH PRODUCTION STAGE

WHOLESALE12.2%

RETAIL7.0%

HORECA32.1%

IMPORTS14.3%

Source: Cebr analysis

TOTAL100%

ECONOMIC IMPACT REPORTAPRIL 2019INTERNATIONAL TRADE

PAGE FOUR#SUPPORTSCOTCH SCOTCH-WHISKY.ORG.UK

Exports of Scotch Whisky increased +7.7% in 2018, adding an additional£337 million to export values, to total £4.7 billion. Scotch Whisky accountedfor 1.30% of the value of all UK goods exports in 2018, an increase from1.28% in 2017. For every £1 billion worth of goods exported, £13 million isScotch Whisky.The UK was a net importer of goods in 2018, with imports exceeding exports by£141 billion. Without Scotch Whisky the balance of trade deficit would havebeen £145.7 billion, 3.3% more than its current level.When ranked as four-digit harmonised commodity codes, Scotch Whisky is the9th most valuable export from the UK, only behind products such as cars,precious metals, aircraft, pharmaceuticals and oil and gas.In terms of the balance of trade, Scotch Whisky is the second biggest positivecontributor, just behind aircraft parts. Scotch contributes more than othernotable sectors such as gold, turbo engines, iron and steel and pharmaceuticals.Scotch Whisky is also the UK's largest food and drink export - out performing thenext seven of the remaining top ten combined. Source: HMRC; SWA analysis

2015 2016 2017 2018

Source: Food and Drink Federation, 2019 Source: UK TradeInfo grouped by harmonised commodity codes HS4* Scotch Whisky is a subset of spirits (HS4 2208)

TOP 10 UK FOOD AND DRINK EXPORTS POSITIVE SECTOR CONTRIBUTORS TO UK BALANCE OF TRADE

VALUE OF SCOTCH WHISKY EXPORTS

AIRCRAFT PARTS +£8.6bn

SINGLE MALT BLENDED SCOTCH WHISKY TOTAL

£0.0bn

£1.0bn

£2.0bn

£3.0bn

£4.0bn

£5.0bn

+£5.1bn+£4.7bn+£4.6bn

+£3.4bn+£2.2bn+£2.0bn+£1.9bn+£1.7bn+£1.7bn

+£1.0bn+£1.0bn+£0.9bn

SPIRITS - ALCOHOLIC BEVERAGESOF WHICH: SCOTCH WHISKY*

GOLDTURBO ENGINES

IRON & STEEL WASTEARTWORKENGINES

PHARMACEUTICALSPRECIOUS STONES

COMBUSTION ENGINESJEWELLERY

BOOKS

CHOCOLATE £750m

WHISKY £4800m

CHEESE £675m

SALMON £645m

WINE £630m

GIN £614m

BEEF £537m

BEER £489m

BREAKFAST CEREALS £482m

PORK £466m

74%TAX74%TAX2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

£0.0bn

£0.5bn

£1.0bn

£1.5bn

£2.0bn

£2.5bn

£2.0bn

£2.5bn

£3.0bn

-£1.00

-£0.50

£0.00

+£0.50

+£1.00

+£1.50

+£2.00

£4.0bn

£3.5bn

-£100m

-£50m

£0m

+£50m

+£100m

+£150m

+£200m

+£300m

+£250m

SPIRITSEX

CISE

REVE

NUE(£bn)

CHAN

GETO

SPIRITSEX

CISE

RATES

CHAN

GETO

EXCISE

REVE

NUES

(£m)

SPIRITS EXCISE RATES AND ANNUAL REVENUES

+£1.29

+£201m

+£169m

+£155m

+£60m

+£39m

+£55m

+£132m

+£270m

+£239m

+£1.16

+£1.72

+£1.29

+£1.41

+£1.08

-£0.56

-£49m

£3 IN EVERY £4SPENT ONSCOTCH WHISKYIN THE UK IS TAX

Source: HMRC

ECONOMIC IMPACT REPORTAPRIL 2019TAX IN THE UK

PAGE FIVE#SUPPORTSCOTCH SCOTCH-WHISKY.ORG.UK

In 2018, HMRC collected £11,981 million in alcohol revenues whichaccounted for almost 2% of all HMRC tax receipts. This is equivalentto revenue collected in stamp duty land tax and is more than doublethe value of Inheritance Tax.Spirits excise duty receipts accounted for £3,760 million, 31.4% of allalcohol revenues – a proportion which has steadily increased in recentyears and having overtaken beer receipts in 2016.Over the last decade, treatment of spirits through excise has changed. Inthe five years to 2013 excise rates were increased annually - a totalincrease of £6.87 per LPA. In the corresponding years, excise receiptsincreased £536 million.Comparatively, in the 5 years to 2018, spirits excise was increased by 52pper LPA. Despite this marginal increase over the five year period, excisereceipts increased by over 23% to add an additional £735 million to HMTrevenues.The duty levied on Scotch Whisky and other spirits in the UK remainshigh. £3 in every £4 spent on an average priced bottle of Scotch Whiskyin the UK is collected as tax, in duty and VAT. Per unit of alcohol, this ismore than any other category of alcohol.The tax on Scotch Whisky in the UK is also high when compared tocomparitive economies around the world.

Source: OECD; Xu Guo; Government of Canada; Australian Government; US Department of the Treasury; National Treasury of South Africa; Cebr analysis

Source: spiritsEUROPE summary of tax rates of alcoholic beverages in Europe, May 2018

Bulgaria

Exciserateperlite

ofpurealcohol

Croatia

Romania

Cyprus

Spain

Italy

Luxembourg

Hungary

Slovakia

CzechRep.

Austria

Germany

EUaverage

Slovenia

Poland

Portugal

Malta

Lithuania

Latvia

Netherlands

France

Denm

ark

Estonia

Greece

Belgium

UK

Ireland

Finland

Sweden

£16.27

£28.74

ECONOMIC IMPACT REPORTAPRIL 2019TAX AROUND THE WORLD

PAGE SIX#SUPPORTSCOTCH SCOTCH-WHISKY.ORG.UK

The UK has the fourth highest spirits duty rate in the EU,with only Sweden, Finland and Ireland having higherrates. Internationally, across other major producing andconsuming nations, the UK has one of the highest rates ofspirit duty in the world.The tax structures of Sweden and Finland, with the highestduty rates, are linked to state owned monopolies.For example, the United States, the second largest producerof globally marketed whisk(e)y, the rate of duty for its nationalproduct is 27% of that in the UK.

AUSTRALIA £4731

UNITED KINGDOM £2874

JAPAN £2540

FRANCE £1562

EU AVERAGE £1627

GERMANY £1171CHINA £1124SOUTH AFRICA £970ITALY £931UNITED STATES £776CANADA £714RUSSIA £249

SPIRITS DUTIES AROUND THE WORLDPER HECTOLITRE OF PURE ALCOHOL